The case stems from a complaint brought by the American Society of Composers, Authors and Publishers (ASCAP) against Yahoo! and RealNetworks, seeking clarification as to what constitutes a public performance online.
A victory for ASCAP would have meant more money for its members, as their songs are increasingly being featured in works offered as downloads. In 2007, the district court ruled in favour of Yahoo! and RealNetworks, and in 2008 determined the methodology for calculating the blanket licensing fee the companies owed ASCAP for using musical works that were considered public performances.
The Second Circuit this week upheld the district court’s decision, but remanded the issue of the music-use revenue royalty rate, deeming the methodology flawed.
“What it means for the short term is that anybody in the business of selling downloads doesn’t have to get a public performance licence,” said Robert Clarida, a partner at Cowan Liebowitz & Latman. “This will certainly make it cheaper for internet service providers to offer downloads because they won’t have to pay a layer of licensing for public performances.”
In a statement, the American Society of Composers, Authors and Publishers (ASCAP) said its members “are, of course, disappointed in the Court's decision that there is no public performance in the transmission of certain musical works”. We are studying the decision and will determine what further action is appropriate”.
This is a significant victory for companies like Yahoo! that provide copyrighted musical content by paying fees to licensing organisations including ASCAP. The issue in this case is not whether copyright owners are owed compensation for downloads - the courts agree they are - but whether downloads should be considered public performances and, in turn, cost internet companies additional fees.
In its interpretation of the Copyright Act, the Second Circuit said the statute clearly defines what constitutes a performance. To perform a work means to “recite, render, play, dance, or act it, either directly or by means of any device or process”. Audio and video streams, for instance, are considered public performances.
But the Court found that downloading a musical work differs from streams in that it does not entail hearing or seeing it as it’s transmitted to the user. While some types of transmissions are public performances, such as television or radio broadcasts, downloads aren’t because the musical works being transmitted do not emit sound or images until they have reached the user’s hard drive.
“For the Second Circuit to take this position [means] it’s now much closer to being settled,” Clarida said.
The Second Circuit did find fault in the district court’s methodology for setting the blanket licensing fee for Yahoo! and RealNetwork’s music-use revenue, ordering the court to restart the process. Among the issues cited was the district court’s use of streaming time in its calculation rather than page impressions, which the Second Circuit considered more precise.
The district court also applied benchmarks used for broadcast and cable TV networks to calculate the company’s licensing fee. While music is used in some way in nearly all television programming, it is used in only a fraction of Yahoo!’s services and, said the Second Circuit, should be reflected in the uniform rate.
The Second Circuit also said the district court must do a more complete analysis of RealNetwork’s services, particularly those that aren’t heavily music-oriented.
“We are very pleased with the appellate court’s ruling,” said RealNetworks in a statement. “We believe the guidelines set forth in this decision will help establish more fair and reasonable royalty rates for Internet music providers.”
Catherine Stetson of Hogan Lovells argued the appeal for ASCAP. Thomas Lane and Michael Elkin of Winston & Strawn represented Yahoo!, while Kenneth Steinthal of Greenberg Traurig represented RealNetworks.
